0 Lecture 3a Bond Pricing

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1、Lecture3Bonds:InterestRate,,,Risk,andValuation5-2TopicsCoveredBondCharacteristicsBondCharacteristicsreadingthefinancialpagesBondPricingandInterestRatesYieldtoMaturityYieldtoMaturityInterestRateRiskCorporateBondsandtheRiskofDefaultRateofReturnsvsYTMRateofReturnsvs.YTM5-3BondsTermi

2、nologyBond-Securitythatobligatestheissuertomakespecifiedpamentstothebondholderpaymentstothebondholder.-BondCertificate:indicationoftheamountanddatesofallpaymentstobdbemade.MaturityDate:thefinalpaymentdateofthebond.TermoftheBond:thetimeremaininguntiltherepaymentdate.Coupon-Thepromise

3、dinterestpaymentsmadetothebondholder.5-4BondsTerminologyFaceValueFaceValue(ParValueorPrincipalValue)(ParValueorPrincipalValue)-Paymentatthematurityofthebondandthenotionalamountweusetocomputetheinterestpayment.CouponRateCouponRate-AnnualinterestpaymentasaAnnualinterestpayment,asapercen

4、tageoffacevalue.Itissetbytheissuerandstatedonthebondcertificate.TypesofBonds:SecuredandUnsecured1)Securedbondshavespecificassetsoftheissuerpledgedascollateralforthebonds.Amortgagebondissecuredbyrealestate.Registered2)Unsecuredbondsareissuedagainstthegeneralcreditoftheborrower;theyareals

5、ocalleddebenturebonds.NoASSET公司債asCollateral企业债发行RegisteredTypesofBonds:TermandSerialBonds3)Bondsthatmatureatasinglespecifiedfuturedatearecalledtermbonds.Registered19992000200120024)Incontrast,bondsthatmatureininstallmentsarecalledserialbonds.1999200020012002RegisteredBondCashFlowsPrice

6、sandYieldsBondCashFlows,Prices,andYieldsAdefault-freezero-couponbondthatmaturesondatenprovidesarisk-freereturnoverthesameperiod.CouponBondsCouponBonds-Payinvestorsregularcouponinterestpayments+theirfacevalttluesatmaturitity.16TypesofBonds:RegisteredandBearer5)Registeredbondsareissued

7、inthenameoftheownerandhaveinterestnameoftheownerandhaveinterestpaymentsmadebychecktobondholdersofrecordbondholdersofrecord.Registered6)6)eaeBearerorcoupocoupobodsnbondsaaeotrenotPayto:JoeSiSmithregistered;thusbondholdersmustsendincouponstoreceiveinterestsendincouponstoreceivein